May 1, 2012 / Law Alert

Mid-Biennium Ohio Tax Bill Contains A Number of Important Provisions

Ohio Substitute House Bill 508, introduced by Representative Peter A. Beck, contains a number of important provisions that, if enacted, would change Ohio tax laws in several ways.

Commercial Activity Tax

  • Under current law, a business’s “gross receipts” subject to the Ohio commercial activity tax are based on the business’s total Ohio-sourced gross receipts from activities that contribute to the production of gross income. As revised, the bill would remove the requirement that the gross receipts “contribute to the production of income,” thereby broadening the CAT base.
  • The first $1 million of a business’s Ohio gross receipts are generally exempted from the CAT. The bill would modify the manner in which the taxpayer may exclude the first $1 million of Ohio gross receipts. 
  • When initially enacted, the CAT rate was designed to be adjustable to meet certain tax raising projections based on taxes collected during initial “test periods.” Because the test periods all have expired, the bill would delete references to those test periods. 
  • The bill would change CAT registration and registration fee provisions.

Sales tax

  • The bill would eliminate the special sales tax vendor categories of “service vendor” and “delivery vendor” but empower the Department of Taxation to create specific new classes of vendor licenses in the future. 
  • The bill would require the Department of Taxation to notify all vendors and sellers of local tax rate changes. 
  • The bill would impose the sales tax on the transfer of ownership interests in pass-through entities if the entity’s sole assets are boats, planes, motor vehicles, or other recreational property used primarily by the LLC’s or other pass-through entity’s owners.

Personal Property Tax Reimbursements

  • Large-scale Ohio tax reform implemented in 2005 and assessment rate reductions starting in 2001 dramatically reduced the amount of personal property tax collected for the benefit of local taxing districts. As part of the phase-out of the personal property tax on most businesses and the reduction of the tax rates assessed on public utility personal property, the state agreed to reimburse localities for some of the lost tax revenue. House Bill 508 would modify and, in some situations, reduce the fix-sum levy losses reimbursed by the state.

Real Property Tax

  • Current law requires county auditors to perform county-wide reappraisals of all real property generally at least once every six years with “updates” performed three years after the reappraisal. Each county operates on its own sexennial and triennial cycle. The bill would authorize the Tax Commissioner, starting in 2014 and ending in 2019, to extend the reappraisal and update cycle in a county by not more than one year. The purpose of this is to standardize and regionalize the real property assessment cycles. 
  • Separate bills are pending in the General Assembly that would modernize the Ohio Board of Tax Appeals and create a “small case” docket. These efforts are, in part, targeted toward reducing the massive case backlog at the BTA.

Financial Institutions Tax

  • Separate bills have been introduced in the General Assembly that would reform Ohio taxation of financial institutions. These bills are generally viewed as reducing taxation on smaller financial institutions and possibly increasing taxes on larger ones.

Interest Rates 

  • The bill would reduce the statutory interest rate charged for most tax underpayments and the interest rate payable on some tax refunds from the short-term AFR plus 3% to the short-term AFR plus 1%. 
  • The bill would increase by 1% the interest rate for underpayments and refunds of estate tax and any remaining business tangible personal property tax. Under current law, the interest rate on these obligations is the short-term AFR rounded to the nearest whole percent, causing the current rate to be 0%. 
  • The bill would provide that interest does not accrue on any portion of a taxpayer’s income, corporate franchise, or CAT refund to the extent the refund is attributable to the allowance of a refundable credit.

Tax Administration

  • The bill would require that a corporation obtain a certificate or other evidence or issue an affidavit that it is current on all state taxes administered by the Ohio Department of Taxation before it could be dissolved. Currently, the requirement applies only to sales and use tax, personal property tax, corporate franchise tax, and highway use taxes. 
  • The bill would permit the Department of Taxation to cancel any tax assessments for a particular taxpayer amounting to $50 or less per tax period. Current law requires that these de minimis debts be certified to the Attorney General for collection. 
  • The bill generally would require a tax return preparer to file electronically if he or she files 11 or more Ohio tax returns per year, down from 75. 
  • The bill would cause the diversion of part of the new casino tax revenue to certain funds created for police training and gambling addiction programs.